Educational Articles

Technology Round Up - January 3, 2014

There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in this sector and the markets they serve.

Twitter’s Stock is on the Move Following IPO

Shares of Twitter (TWTR) appreciated dramatically in price in the final month of 2013, following the company’s initial public offering in early November. The shares advanced from around $40 per share in early December to a high of almost $75 a share late in the month, before a subsequent pullback of around 20%. Since then, the stock then regained some lost ground, and presently trades at almost $70 per share.

The company offers users a global platform to express themselves on the Internet in real time. Twitter generates the substantial majority of its revenue from advertising. The top line has increased considerably in recent years, though the company has yet to earn a profit, based on generally accepted accounting principles. At this juncture, the market appears to believe impressive revenue growth will filter down to the bottom line in the coming years. This may well prove to be the case, but it is by no means certain. Moreover, the valuation appears quite rich, even by the standards of growth stocks. This issue currently trades at a price-to-sales multiple of almost 69, and a price-to-book ratio of about 45. For comparison, Google (GOOG) is trading at a price-to-sales of about 6.5, and a price-to-book of 4.5. Facebook (FB) is trading at a price-to-sales of just under 20, and a price-to-book of about 10. With such a high valuation, any unforeseen obstacles could drive the stock price significantly lower.

BlackBerry’s Third Quarter Results

BlackBerry (BBRY) recently announced unfavorable results for the third quarter. The top line declined more than 50%, on a year-over-year basis. Moreover, the company reported a share loss of $0.67, considerably below our estimate and the prior-year tally. BlackBerry continues to experience falling demand for its lineup of offerings. The company sold only 4.3 million handsets during the quarter, in comparison to 6.9 million in the prior-year period. Moreover, the lion’s share of handsets sold utilized the old BlackBerry 7 operating system. On the bright side, BlackBerry has signed a five-year partnership agreement with Foxconn Technology Co. Ltd., to develop and manufacture a handset for Indonesian and other emerging markets. Under a new Chief Executive, BlackBerry will focus its development efforts on software and services, in an attempt to restore profitability over the next few years. The stock rallied following the announcement of the Foxconn deal to over $7.50 a share, though it remains well off its 52-week high of just under $18 per share, and considerably below its all-time high in 2008, when the issue exceeded $140 per share.

Online Sales Grow at a Strong Pace in the Fourth Quarter

Online Sales increased roughly 10.3% in the fourth quarter, on a year-over-year basis, according to data released by IBM Digital Analytics Benchmark. Sales from mobile devices advanced 46%, and made up almost 17% of total online sales for the period. The data reveal that customers more often use smartphones than tablet computers to browse, but are more likely to make purchases from a tablet. Customers using Apple (AAPL) devices accounted for almost 13% of all online purchases. Certain items appear particularly well suited for purchases from mobile devices. This includes apparel and health and beauty products.

Overall, sales from mobile devices have increased dramatically in recent times, albeit from a relatively low starting level. This underscores an important ongoing trend, which we expect will continue in the coming years. As mobile devices become increasingly ubiquitous, customers are more likely to use them to make purchases. As a result, mobile advertising has become an important driver of operating performance for social media companies such as Facebook and Twitter.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.